Microsoft seen edging onto Apple's iPod turf

But analysts say Apple should still maintain market high ground

SAN FRANCISCO (MarketWatch) -- Apple Computer Inc. could soon find itself facing more competition for its iPod digital music player from its old rival Microsoft Corp., as the software giant is reportedly ready to launch its own portable media player in time for the key holiday shopping season.

According to published reports, Microsoft
MSFT, +0.00%
is preparing to roll out a competitor to the market-leading iPod which will be capable of downloading songs wirelessly, something that current iPod models can't do.

Microsoft, whose Media Player software currently runs on portable music players made by Dell Inc.
DELL
and others, is preparing its own device that will reach retail shelves for the end-of-the-year consumer-shopping bonanza, Bloomberg News said in a report.

A Microsoft spokesperson said the reports were based on "speculation and rumors," echoing remarks made by Microsoft Chairman and co-founder Bill Gates at a technology conference in May. "We don't have anything to announce at this time," the spokesperson said.

Such a device has been the subject of intense speculation during the past six months as Microsoft seeks a way to blunt Apple's dominance of the market for so-called MP3 players.

Gene Munster, an analyst with Piper Jaffray, said that while Microsoft isn't saying anything directly about entering the fray against the iPod, the company's history of leaking information in advance of product releases suggests a device is in the works.

Still, it's far from certain that a Microsoft-branded device will be able to supplant the iPod, which holds about 75% of the U.S. market for digital media players, according to the research firm NPD Group. Apple's iTunes Internet music store accounts for more than 70% of all legally downloaded songs.

"The question will be, 'Does anybody want it?'" Munster said. "If it's just the same old MP3 player, there are already lots of those out there. It doesn't mean Microsoft won't be successful, but they will have to do something more," by adding new features, he said.

The latest reports come amid the usual summer speculation about what Apple has up its sleeve for the back-to-school and holiday seasons. Apple hasn't released a new iPod since bringing a 1-gigabyte version of the iPod Nano to market earlier this year, and analysts and investors have begun to wonder what the company will do next.

The company will hold its annual developers conference in San Francisco in August, and Chief Executive Steve Jobs will be expected to show off something for the throngs of faithful Mac users that attend.

Analysts are looking for Apple to do a redesign of the iPod that could include everything from an iPod cellphone to a new video iPod with a larger screen. The ability to download songs from iTunes wirelessly is seen as one of the most-desirable features.

Munster said that based on demand and technological advances, it wouldn't be a surprise to see Apple come out with a new iPod that has wireless-downloading capability.

Part of Microsoft's strategy

For Microsoft, pushing into the consumer-electronics market with its own MP3 player would fit with its strategy to expand outside of the software markets that it dominates. The company makes the Xbox line of video game players and has also made forays into the market for tiny, hand-held computers.

But such a move could see Microsoft competing against its own partners instead of Apple, according to Shaw Wu, an analyst with American Technology Research.

"No matter what Microsoft says, this move essentially puts Microsoft in direct competition with its partners that it has worked with over the past three-to-four years," Wu wrote in a recent research note. Wu said Microsoft's entry into the digital-media player market would likely have a larger competitive effect on its partners such as Sony Corp.
SNE, -1.38%
Samsung and Creative Technology Ltd.
CREAF, -3.63%

Wu said that Microsoft could do something similar to what Apple has done with the iPod and iTunes Music Store, but that the company has struggled to make money with similar business extensions, including the Xbox. Wu questioned whether Microsoft "is willing to fund another potential highly unprofitable business."

Apple shares fell $1.23, or more than 2%, to close at $55.77, while Microsoft tacked on 13 cents to end the day at $23.48.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information.
All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only.
Intraday data delayed at least 15 minutes or per exchange requirements.